Hammond Hanlon Camp LLC Advises HealthEast on Comprehensive
Debt Restructuring
posted on August 13, 2015

 

ATLANTA—Hammond Hanlon Camp LLC (“H2C”), a healthcare-focused investment banking firm, served as the exclusive financial advisor to St. Paul, MN-based HealthEast Care System ("HealthEast") in connection with the development of a Strategic Capital Plan and a comprehensive debt restructuring that included the issuance of approximately $300 million of debt, including tax-exempt, fixed rate bonds and taxable, variable rate private placement bonds.

 

HealthEast’s new management team began implementing an improvement strategy in 2013-2014 and, while a significant progress had been achieved, the System faced a looming spike in annual debt service starting in 2015 and it’s cash balances were low relative to industry medians for similarly rated health systems (BBB-/BBB-).

 

H2C was engaged to develop a Strategic Capital Plan and implement a plan of finance that accomplished three key objectives: 1) reduce the immediate debt service burden so that HealthEast could rebuild its cash balances; 2) reduce interest costs over the long term; and 3) maintain flexibility to refinance debt after the System’s financial profile improved.  Working closely with HealthEast’s management team, H2C evaluated the entire debt portfolio and multiple funding strategies, ultimately recommending to the Board of Directors a mix of tax exempt, fixed rate bonds and taxable, variable rate, private placement bonds as the optimal structure. 

 

Specifically, H2C restructured the amortization schedule to align long term assets with long term liabilities and developed an optimal mix that reduced HealthEast’s maximum annual debt service burden by $15 million and its annual debt service requirement over the near-term by approximately $12 million, providing significant cash flow.  

 

“We worked to understand management’s goals and took a strategic view of the plan of finance.   We designed a structure that will enable HealthEast to rebuild its balance sheet and make the investments to be successful as the System pursues the transition from volume to value,” said Richard Bayman, Principal with H2C.

 

H2C led a competitive RFP process to select bank purchasers, underwriters, bond and underwriters’ counsel and trustee.  Throughout the documentation process, H2C and the underwriters continued to monitor market trends. With interest rates moving off of all-time lows, the financing team worked to determine the optimal time to price the public fixed rate bonds.  The financing team targeted a relatively quiet issuance week in early June, which allowed HealthEast to take advantage of the high liquidity levels typically present at this time of year among institutional buyers.  

 

HealthEast and H2C created a credit strategy that reduced the number of ratings from three to two and resulted in the System earning an affirmation of its investment grade ratings from S&P and Fitch.  With ratings affirmed, H2C, HealthEast and the underwriters began an aggressive marketing campaign to highlight the System’s positive performance and balance sheet restructuring.  Over ten days, HealthEast met with multiple investors by conducting road shows in Boston, New York and online and held a number of one-on-one meetings.  The campaign was successful, as HealthEast’s bond issuance was 6x oversubscribed and the team was able to re-price and reduce yields as a result.

 

The financing transactions closed concurrently in June 2015.  The restructuring was a noteworthy success for HealthEast, achieving $85MM in cash flow savings over the next seven years and providing greater flexibility and liquidity for HealthEast at a crucial time in the System’s evolution.  “H2C showed tremendous insight in designing the plan of finance and exceptional leadership in managing a complex process by coordinating the various banks, underwriters and legal teams in a very short time frame,” said Doug Davenport, SVP and Chief Financial Officer at HealthEast.